City discusses 'future of Transferable Development Rights'
By Bari Auerbach

At the July 8 City Commission meeting, Mayor Norman Edelcup initiated a discussion regarding the future of Transferable Development Rights (TDR's) in Sunny Isles Beach. The Mayor proposed an ordinance that would eliminate future private-to-private TDR transactions; and designate the City as the "sole seller" of TDR's (except in cases where the same entity owns both TDR sender and receiver sites).

TDR's can be defined as "the process by which development rights are transferred from one lot, parcel, or area of land in a sending district (usually where land conservation is sought) to another lot, parcel, or area of land in one or more receiving districts (where property is desired and can be serviced properly)." Pertaining to specific parcels in Sunny Isles Beach, if a property owner has no interest in building on the site he owns, he would then have the option of picking up the TDR's on that property and selling them or transferring them over to another site in the city upon approval of the City Commission.

Main TDR receiver sites where land could potentially be donated to the City are the east side of Collins Avenue and the Town Center district on the west side of Collins Avenue from 172nd Street to and inclusive of Sunny Isles Boulevard.

Mayor Norman Edelcup's report
"I had some conversations with our City Manager and City Attorney relative to how the TDR system was working in the past year we've had it in place - and as a result of our conversations, I've basically tried to come up with a report and perhaps recommendations for our Commission to consider," Edelcup said.

"During the past year the only private-to-private TDR transaction was one in which an owner of the sender site [the Casino property by the Rascal House restaurant] was also the developer of the receiver site - The Related Group of Florida.That's the only private-to-private transaction that was consummated this year and that was primarily because the buyer, seller, sender and receiver were one in the same.

"The three most recently approved TDR sales [administrated by the city] were successful and we had no problem in selling TDR's to [J. Milton & Associates'] Sayan site, the King David site and Jade on the Beach."

'TDR sale stalemate?'
"There have been a lot of discussions throughout the past six months - particularly between owners of potential sender sites and owners of approved receiver sites - all of whom could benefit from the purchase and use of TDR's. None of these discussions, other than the one that I've mentioned, have resulted in any consummation of any actual transaction.

"Either the seller of the receiver site was asking for more money than the buyer wanted to pay or the buyer wanted to pay less than the seller was willing to sell it for. But the bottom line was - when all these talks took place, nothing happened and there was just a stalemate and there were no other transactions.

"The city has already approved the transfer of nearly 600,000 square feet of development rights and we've only received the Casino property for the public purpose of a park. We also want to receive sites for a school, a theater and cultural arts centers - and it appears at this point that the private-to-private sector has not been able to consummate transactions for whatever reasons."

Edelcup further explained TDR's are earmarked to fund the city's mission to move forward with obtaining land for parks, schools, theaters and cultural centers consistent with requirements of the city's Comprehensive Plan.

"It seems quite apparent that the city needs to be the seller of TDR's it attains in the process of acquiring land for needed public purposes," Edelcup said. "We can accomplish this by purchase from a seller or we can accomplish it through eminent domain proceedings for that public purpose. If the city is the sole seller of TDR's it will be better in administrating the price that we get for the TDR's through the appraisal process we've already established."

'Fair market value'
"TDR's are sold to a receiver site based on the appraisal at that site," Edelcup said. "In this matter, if the city is the sole seller we will eliminate the uncertainty and the untruthful bargaining that the private sector has created in the past year. Results from the last year clearly indicate an inability for the private sector to negotiate a price between private-to-private parties. Thus, the city can step in, set the price, once and for all based on the appraisal we obtain for that property - and there doesn't need to be any negotiations.Its just based on a fair appraisal and the appraisal process provides for multiple appraisals if there's a difference.

"If the city is setting the price [for TDR's], it's able to at least establish an orderly market which doesn't seem to have occurred in these past eight months where numbers are bandied around and nothing every takes place. That's why I think the city is in a better position, since it created this particular item, to go forth and administer [TDR sales] in an orderly fashion with appraisals. Then everything at that point becomes a fair price. That's not to prevent a developer from acquiring land on his own and using his own TDR's - but what we're trying to prevent is the area where we're seeing a lot of speculation but nothing's happening."

Explaining how a value is placed on TDR's, Edelcup said, "TDR's go into our bank and when they come out, we create a value based on an appraisal of the receiver site. Up until that point, we don't know what the TDR's are worth because it's dependent on where they're going and the appraisal of that property at the time they're going.You don't have different [TDR] 'inventory amounts' because they're all in the inventory at no price - they're just in there in square foot or units. They come out at square foot and units at a price that's not negotiated but determined by the appraisal process.[The value of TDR's] are dependent upon the appraisal of the receiver site so it's a fair current market value price.

'Exception to the rule'
"The only logical [exception] to the city being the sole seller [of TDR's would be] when the developer owns both the sender and receiver sites much like The Related Group had in their situation with the Casino Property; and much like some of our other developers who have land they've already acquired but are not planning to build on but want to transfer those development rights to their other property," Edelcup said. "I see no problem in having that as the exception in a private transaction where the buyer and seller are the same person.There's no negotiations going to go on and there's no conflict that's going to be created because that person represents both sides of the transaction.

"When a developer is using his own land for transferring development rights, [the city] still has protection on that because he can't create that transfer unless the city is willing to accept that site for a public purpose.so the city can still determine whether or not that site is a site that we want [for a public purpose]. For instance if a developer owned a site that had an oil spill or poisonous materials on it, we can decide we don't want that site."

'Eliminating the cap'
"If [the city] is going to be the sole seller of TDR's, to maximize it's cash flow in return there should no longer be a cap on the number of TDR's sold to any one development in the city," Edelcup suggested. "Since the developer [must] still come to the city for site plan approval, this Commission can determine on a site by site basis and upon site plan review whether or not TDR's should be granted; and the Commission still retains within its sole discretion the amount of TDR's that the particular site can have."

Expressing his viewpoint, Commissioner Danny Iglesias said, "I do agree with removing the cap [on the number of TDR's sold to any one development in the city] but I also do agree with [retaining] the [private-to-private transactions]. If the city is going to receive land because somebody wants to give us land and we're in agreement because it may be a future park - hey let's receive it and let them worry about if they want to sell [the TDR's] or not.If they can't sell it - 'tough.' The city already has the land which is very valuable."

'Generating funding'
"At the same time, the city will generate the cash from the TDR's that it currently has in inventory perhaps at a quicker pace .[this] would help pay for the potential school we're considering building, which would also include a cultural theater auditorium in it. So the funding for all of this can come from these TDR's. And since the inventory of TDR's does exist in the city.based on the current market value on the east side that translates to some $30 million that the city could receive for capital improvements which would go far and beyond what it would take to get the school and auditorium site under city control and built.

'A living document'
"The TDR's have been around for a long time.[the Commission] just always seems to be amending it," Edelcup said. "It seems to be a 'living document' that we've created and I think that as we've gotten further along into the process, we've seen different nuances appear that we didn't see up at the front end.

"It may seem like we're always amending this particular ordinance and the reason I think we are is because it is such a unique ordinance and it is such a unique right that we're creating. It is something that doesn't occur naturally in normal development processes throughout the world. It's unique in many cities and we happen to be one of them - and we don't have a lot of history from other cities as to what they did in these areas so we're on a learning curve.

"I think in reflection on where we've been in the last year, if the majority of the Commission agrees, I would like the City Attorney to redraft the ordinance to conform to this [report] and applications would be subject to these new terms unless they've already been vested - but anything coming forward after this ordinance is passed would be subject to these conditions."

'A legal opinion'
Presenting a dissenting opinion, attorney Cliff Schulman, who represents developers in Sunny Isles Beach, said, "I do agree with lifting the cap [on the number of TDR's sold to any one development in the city]. But why haven't these private-to private [transactions] been taking place?

"[The City Commission has [changed the TDR ordinance] three - possibly four times. Let me tell you one thing about developers - they look for continuity.If we have some degree of predictability without the Commission changing this ordinance.I think you'll see [results]."

Schulman went to point out, "If I can buy for $40 or $60 per square foot a TDR that's in a bank account and I can put it on a project on the beach and sell it for $400 per square foot.Duh?! This works - you have something that no other municipality has: The ability to take a piece of property on the 'other side' and put it on the ocean.If we stop changing [the TDR ordinance] and give it some time to settle, I think it's going to happen."

'Creating a monopoly?'
"You're trying, by ordinance, to monopolize the buying and selling of TDR's in the hands of the city," Schulman said. "But with all due respect - you already have that. If I come to [the City Commission] with any private-to-private deal where I donate a piece of property to you - you can say 'no.'

"Basically what you're doing is narrowing [the city's] options by saying, 'We're not going to use the tool of TDR's to let the marketplace determine [the value]. What I'm suggesting to you is don't give away a tool you presently have. [The city doesn't] have to pay fair market value necessarily when you give someone TDR's and you don't have to take cash out of the bank.What you're basically doing is saying, 'We want to sell this 300,000 square feet and that money we get is to pay for all the capital improvements we have left to do for parks, schools and otherwise - as opposed to allowing developers to give it to you virtually for free. I believe you're being shortsighted and the main reason why these [TDR] transactions have not taken place is because there has been no certainty in this ordinance."

'Mayor Edelcup's rebuttal'
In response to Schulman's remarks, Edelcup said, "We've had owners of property coming in here and asking [the city] to sell for them - the fact that they can't sell to the developer is proving only the city can control this."

Schulman subsequently replied, "Unless and until the ordinance stops being tweaked or changed, I can't give [developers] the assurance they need that the TDR's are worth anything. I suggest you let this TDR ordinance alone, let the marketplace adjust, and then don't necessarily create a monopoly in the hands of the city."

Edelcup replied, "If you're right, the marketplace has an opportunity to prove that in the time it would take to draft [this new ordinance]. So if what you're saying is correct, then let's see it happen and then maybe there's no need for the ordinance.If we did draft something it will probably never get to the Commission to look at until September because we're recessed in August.If private-to-private transactions all of a sudden seem to resolve themselves, we get two readings on this, so we can get an opportunity to see if anything's going to happen that would not necessitate moving forward. I'd like to suggest that we move forward with this knowing that it's going to be October before a second reading would ever occur."

'A stimulating TDR proposal'
During the TDR discussion, Arnold Shevlin spoke on behalf of RK Associates, owner of the "Alamo property" the city is currently attempting to acquire through eminent domain proceedings. The parcel, situated next to the Sunny Isles Beach Government Center currently under construction, has TDR's attached to it worth millions that RK stands to lose if the court determines the property can be purchased by the city for "fair market value."

"Speaking on behalf of [Raanan Katz] who is looking to transfer property on a private basis to someone on the ocean and sell TDR's - we believe there is a right there and we further believe the city should not be in the business of selling TDR's on a monopoly basis and there should be a competitive system," Shevlin said.

"Listening to what Mr. Schulman had to say and to the Mayor, I think there is a suitable compromise.There have not been many private-to-private transactions taking place. The possible compromise is reverting back to the initial ordinance where in order for a developer on the ocean to get zoning approved by the Commission - that developer should come to you with a site that has been identified with a [TDR] transaction already approved.I think that would solve your issue of stimulating transactions.The city would still have complete control; and it would keep it an independent system."
 
Shevlin's comments about how TDR "done deals" could help stimulate transactions are exemplified by two recent zoning matters that came before the City Commission regarding Ocean Four and Trump Royale. The applicants were granted the right to build additional units based on the presumption that TDR's would be acquired in the future - however the TDR's had yet to be obtained by the developers at the time the Commission granted conditional approval for construction of the additional units.
In the case of Ocean Four, the Commission granted the applicant's request for 65 additional units based on obtaining TDR's equivalent to 65 units and 112,905 square feet. The Commission also granted Trump Royale the right to acquire 92,103 square feet of TDR's to facilitate the addition of 54 condominium units.
Zoning Administrator Jorge Vera explained, prior to issuance of a building permit, the developers would have to show evidence to the city of the possession - or rights to possession of TDR's in the respective designated amounts.

Mayor Edelcup further noted, " If [the developer] does not obtain the TDR's, they would have to come back for a whole other site plan review.This is the risk [the developer] knows he's taking when he comes in here.We've made it clear he doesn't get the [final] approval without having the TDR's - and he can't pull a [building] permit because all he has is a 'conditional approval.' We still have to go through another process because when he does have a potential seller of TDR's, the city has to accept that parcel in order for the TDR's to be created."

'Preserving Capitalism'
During further public discussion of TDR's, the issue of "preserving capitalism" was brought up by Bill Lone, executive director of the Sunny Isles Beach Resort Association; and Lila Kauffman, a former Sunny Isles Beach City Commissioner.

"Let's put [the existing TDR ordinance] in the marketplace and see what takes place," Lone said. He also suggested the fluctuating nature of the TDR ordinance was creating a sense of uncertainty and apprehension among potential TDR purchasers.

Kauffman added, "If someone wants to buy something or sell something and have a profit that's the system - it's called 'capitalism.' For the city to get into it doesn't allow the market to do its own rising and falling within its sphere.I think this should be something between the people who need it and want it - and then 'the price is right.' I don't think it's something [the City Commission] needs to legislate."

Expressing an opposing viewpoint, property owner Arie Steiger said, "I agree with [Mayor Edelcup] 100 percent that the city should deal with the TDR's and not the private entities.I've been trying to do deals with some developers for the past six months and nothing happens."

'Moving Forward'
Summing up the purpose of the newly proposed ordinance amending the TDR process, Edelcup said, "The cap [on the number of TDR's sold to any one development in the city] is going to be removed; the city would be the sole seller [of TDR's] except where a developer buys land for its own use.[The Commission] can look at this in September or October.If there has still been no movement in the private sector, it just reinforces why we should move forward with this."


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